Sala Kannan recounts a dinner with a Johannesburg asset manager, where the discussion turned to Investing in Whiskey and other atypical investment ideas.

[From the desk of Gunner: Today, you’ll hear more from our globe-trotting correspondent Sala Kannan. After philosophizing about expensive whiskey under the stars in Johannesburg, Sala presents some ideas about unexpected alternative investments. She also mentions two lucrative African investments that have gone unnoticed for years. One of them has even returned 550%...

Enjoy...]

I had dinner with a prominent South African asset manager in Johannesburg yesterday. As you know, I am in Africa researching new investment opportunities. My schedule here has been so packed that I have resorted to inviting analysts and fund managers to dinner just so I can squeeze in that one extra meeting each day.

The person I met yesterday is a veteran asset manager; let’s call him Andy, since he requested anonymity. I met him at the Polo Lounge and Bar in the beautiful Westcliff Hotel. The Polo Lounge is a colonial-style bar and restaurant perched high on the Westcliff Ridge. We sat outside near the dramatically lit overflow pool; right below us, the little lights of suburban Jo’burg twinkled away.

I was pleasantly surprised to learn that Andy, like me, was an avid stargazer. “I love the southern skies,” I remarked. “You can clearly see Orion, my favorite constellation.”

We looked up at the clear night sky and there he was — Orion the hunter. All three stars, Alnitak, Alnilam and Mintaka, that form his belt were clearly visible. And Orion’s left shoulder was marked by the brilliant star Betelgeuse.

Investing in Whiskey: A Galaxy of Investment Opportunities

“That’s the advantage of the Southern Hemisphere,” Andy said. “But there is an investment lesson here,” he explained. “You see, when a stargazer looks at the sky and sees Orion, he forgets that if only he changed the focus of his telescope he could see many other constellations.”

Very true, but what is the investment lesson here? I wondered.

Andy continued, “When we look at the investment galaxy, we tend only to look at stocks as investment vehicles. But if you change your focus, if you zoom out on your investment telescope, you’ll find all sorts of investments just begging to be bought into.”

Was Andy suggesting that an investor look away from the entire stock market? Indeed, he was! I was intrigued. Andy even showed me an instant example. “Here, look at this drinks menu.” Andy held up the elegantly calligraphed card. “Lagavulin 16-year-old Scotch whisky, 1,650 rand, $270 a bottle,” he read out.

A brief description of the spirit promised deep and outstanding aromas of peat and salt. “Sherry flavors at first, then an interaction of sweet and dry flavors on the palate and far into the finish,” read the drinks menu.

Andy explained that aged Scotch whiskeys have time value — the longer one is aged, the higher its price. Because there are economic costs to keep a barrel of whisky lying around for years together, time literally is money. An investor who wants to exploit this gestation and time value for whiskey could invest in a bottle or two. Sound ridiculous to have whiskey in your investment portfolio? Just think about the price appreciation.

“A bottle of 1973 Cardhu goes for about $118. You pay $118 for a 33-year-old whisky. How about a 69-year-old one? If you pay $118 for 33 years of aging, you should pay $247 for 69 years of ageing right? WRONG!” Andy said excitedly.

He then went on to explain that a 1937 Glenfiddich, the oldest whisky ever sold, costs not $247, but an amazing $17,000.

Investing in Whiskey: Invest in Things No One Else Considers Brilliant

It’s easy to see that whiskey prices grow exponentially. Doesn’t seem like a bad investment to me. All you need to do is zoom out your investment telescope.

Another unusual investment was made by singer Michael Jackson when he bought the rights to over 200 Beatles songs. Who would have thought of it as a brilliant alternative investment? This $47.5 million that Jackson invested in 1985 is now worth a whopping $500 million! In fact, it’s this investment that will probably bail the singer out of his millions of dollars of debt.

According to a FORTUNE magazine article, “Malcolm Glazer was ridiculed when he paid $192 million for the hapless Tampa Bay Buccaneers in 1995. But after a 2003 Super Bowl win, they’re now valued at more than $700 million.”

Similarly, when Warren Buffett invested in a small insurer called GEICO, the company reported a loss of $126 million in 1976 and its shares fell from $45 to just $2. Most people wouldn’t have seen this company on their investment telescopes. But today, GEICO is America’s fourth largest private-passenger auto insurer, with over 6 million policies.

When the investment greats make “alternative” investments, they sure know what they’re doing. Bond king Bill Gross said, “I’ve learned more about the capital asset pricing model (CAPM) by collecting stamps than I ever learned at business school.” Gross traded a block of four rare 1918 stamps depicting an upside-down airplane for another very unique stamp, an 1868 Z Grill depicting Benjamin Franklin. Donald Sundman, president of Mystic Stamp Co., had purchased the Z Grill in 1998 for $935,800 as an investment. Now in Gross’ hands, the stamp is worth $3 million.

Talking of investing in unusual and low-visibility assets, would you ever think of buying anything at all in Africa? How many of us point our telescopes and see Africa in our investment galaxy?

That’s exactly what I’m doing right now. And I’ve found two lucrative African investments — both of which have gone unnoticed for years. In fact, one of them has returned 550% over the last few years and the other has just embarked on a great bull run. Both these investment opportunities will be in the report I’m working on for my subscribers of the Agora Financial Special Report Series. Very soon, I will let you know how you too can gain access to my exclusive, in-depth reports. In the meantime, visit my Africa blog at http://salainafrica.blogspot.com/

Regards,

Sala Kannan
February 3, 2006

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